Janelle Kushukova: Barriers in the EAEU as a litmus test

Recall that at the beginning of February this year, a regular meeting of the Eurasian Intergovernmental Council was held in Almaty, where a wide range of issues of trade and economic cooperation were touched upon. At the same time, according to the Prime Minister of Kazakhstan Alikhan Smailov, there are still issues that do not allow the EAEU member states to fully experience all the advantages of the integration union.

- Janel Sabyrovna, please tell us what measures the Government of Kazakhstan is taking today to protect the national interests of our country in the Eurasian Economic Union? I remember that even before the adoption of the EAEU strategy in 2020, the country's President Kassym-Jomart Tokayev noted that Kazakhstan bears serious economic costs within the framework of this union, including due to barriers for Kazakhstani goods on the way to the Russian market.

- Here, rather, we can talk about the lost benefits that Kazakhstan initially counted on during integration.

The Union should provide free access to the markets of the participants. However, Kazakh entrepreneurs face various barriers in the process of developing the largest Russian market in the EAEU. This is due to the desire to protect the domestic market from competitors. For example, there were cases when E. coli were found in the food products of certain Kazakhstani companies, which is why they had to stop deliveries.

In such situations, our ministry is involved as the coordinator of the Eurasian integration, then we will involve other state bodies: we find out the circumstances, prove, test, discuss at different levels and ensure that our producers can return to the market of the neighboring state.

In fact, to eliminate barriers, the Eurasian Economic Commission was created - a platform where we discuss controversial issues, agree and prescribe general terms of trade. However, we need specific cases, because until our companies encounter something like this, we will not know about the presence of a barrier.

In general, barriers in the EAEU are like a litmus test, a reflection of the fact that Kazakhstani producers are beginning to become more active in the markets of partner countries.

To date, we have already managed to eliminate 61 barriers out of 70 classified, and we do not intend to stop there.

- But it should be noted that in March 2022, in addition to global sanctions, Russia itself imposed restrictions on the export of certain goods, for example, such as sugar, grain, industrial equipment, stationery, and did it unilaterally, thereby violating the principles of the EAEU…

- After the announcement of sanctions, Russia tried to stabilize the domestic market. And indeed, in March we faced a negative situation due to export restrictions on a number of goods from Russia.

As for sugar, we had quite tough and long negotiations within the framework of the EAEU. Russia is a major supplier of this product, as well as Belarus, to our market, and it's no secret that most of our processing enterprises are "hooked" on Russian cheap sugar. Consequently, the restrictions imposed were a shock, first of all, for processors.

According to the results of heated discussions, we managed to achieve a tax-free import of 450 thousand tons of these products. Despite the fact that the duty on sugar is 340 dollars per ton, and on raw - 140-250 dollars per ton. Thus, we have created an opportunity for alternative supplies of sugar or raw materials for sugar factories to meet the domestic needs of the country for this product. In turn, sugar prices rose, including under the pressure of inflationary expectations, when citizens began to buy it "in reserve".

As a result of the negotiations, the Russian side allowed the import of sugar under contracts concluded before the ban was imposed, and then agreed to increase the volume of sugar imports under the privilege and extend the privilege until the end of the year.

If we talk about wheat, then you know that we grow it ourselves. At the same time, we needed exactly the grain for sowing. We also solved this problem through negotiations, the Russian side amended its resolution and released seeds for sowing to our market during the sowing season.

Regarding office supplies, there are a number of aspects here. Firstly, many Western brands have suspended their activities in the Russian Federation, and therefore supplies to our country have stopped. Next, these are goods that were supplied by large distributors through Russia to Kazakhstan.

It should be noted that for large international companies, the Kazakh market is small, so it was not profitable for Kazakh suppliers to directly supply such products here. In these cases, deliveries were made through Russian distributors. Accordingly, when sanctions were imposed, these goods ceased to be supplied to Russia, and accordingly to us. Actually, just like many household goods, hygiene products and even medicines.

But we see that today the Kazakh business has already begun to rebuild, to conclude contracts directly with Turkey and other countries. Of course, to a certain extent, all this affects the final price of the goods.

Regarding industrial equipment, I would also like to clarify the situation. The Russian government has established a ban on the export of foreign equipment from the country, and it applies to the equipment of foreign companies that have stopped their production and left the Russian market. It so happened that Kazakhstani companies that purchased equipment through Russian suppliers fell under the "general distribution". 

Here, the decisions were in the process of negotiations with the Russian side on each specific case.

- Don't you think that this union is more beneficial to Russia than to Kazakhstan?..

- I believe that unions of this scale are more beneficial to small economies that can feel the advantage of a large market.Take, for example, the Russian market with a population of about 150 million people and Kazakhstan with a population of 19 million.

What Russia sold to us before the EAEU, it would have sold to us without it, because there has always been a free trade zone between us, one third of the total imports traditionally come from Russia.

Meanwhile, by the treaty on the formation of the EAEU, we have secured the obligation of four freedoms: the freedom of movement of goods, services, capital and migrant workers. The Eurasian Economic Commission was established to comply with these obligations.  As I have already said, the commission has become a legitimate platform to demand the fulfillment of the obligations assumed, for example, the removal of barriers to access to partner markets, public procurement, etc. If necessary, you can go to court, but in fact, the resolution of controversial issues takes place on the margins of the commission.

I want to emphasize that cooperation within the EAEU is based on equality and mutual benefit. As long as the union responds to this, it will be our priority. Let me remind you once again, we are talking about four freedoms: the movement of goods, services, capital and migrant workers. That is, the main benefit for us is free access to the market, which is almost 10 times larger than our domestic one. This is very important, including from the point of view of attracting investments. Now foreign investors understand that by investing in production in Kazakhstan, they get a market of about 180 million consumers, since goods produced in Kazakhstan are freely traded throughout the territory of the EAEU.

Imagine that you processed your 10 acres and received a certain harvest. Now a field of several hectares opens up in front of you. Of course, you can stay on your site, or you can strain yourself and go beyond it. And if you have difficulties, then there is a tool to solve them. But a lot depends on the business itself, its capabilities and desire to explore new territories.

- How much has Kazakhstan's trade with the EAEU member states, as well as with third countries, changed in the conditions of the geopolitical situation?

- It cannot be said that the current situation has dramatically changed the nature or geography of Kazakhstan's foreign trade.

The main products of Kazakhstan's exports traditionally remain ores, metals, uranium, ferroalloys, aluminum oxide. But at the same time, the share of domestic processed products is also growing, in particular, when exporting to the EAEU.

Due to the current geopolitical situation, Russia's steel and ore supplies to European countries have decreased, which led to a decrease in Kazakhstan's exports of rolled metal to Russia by 31%, iron ores and concentrates by 77.6% and precious metals by 7.7%, as there is a surplus of its products on the Russian market.

As for exports to Belarus, there is a reduction in the supply of coal by 91% (from 38.9 to 3.5 million dollars), petroleum products by 87.4% (from 4.7 to 0.6 million dollars), etc. Among imported goods from Belarus, beef supplies decreased by 83% (from 28.2 to 4.8 million dollars), trucks - by 80.8% (from 8.9 to 1.7 million dollars) and sugar - by 32.2% (from 17.8 to 12.1 million dollars).

In turn, Kazakhstan has reoriented the export of coal to Switzerland and Turkey, increasing the volume by $ 96 million and $ 70.4 million, respectively.

At the same time, Kazakhstan's exports to third countries increased by 42.2% last year and amounted to $ 74.7 billion, including significant growth in oil, ferroalloys and gas - by 51%, 42% and 6%. This was due to an increase in their cost, as the physical volume of supplies remained at the level of 2021.

At the same time, in 2022, imports to Kazakhstan from third countries increased by 38.9%, to $ 31.4 billion. Kazakhstan began to import more cars (an increase of 2.2 times), medicines (an increase of 26%), electronics (an increase of more than 30%). The reasons for this trend were the increase in the price of these goods, as well as the growth of direct supplies of goods, the distribution of which was previously carried out through Russia.

It should be noted that the share of trade with the EAEU countries accounts for 21% of the total turnover of Kazakhstan, and with the states of the European Union - 29.8%. Therefore, the countries of the far abroad are equally important for us both as sales markets and as suppliers to the domestic market of in-demand necessary equipment and high-tech products.

- And how do you assess the risks of secondary sanctions for Kazakhstani enterprises and for the country as a whole? Does our membership in the EAEU affect our relationship with the West?

- A lot depends on Kazakhstani entrepreneurs here: if they neglect the sanctions restrictions and prohibitions, then there is a high probability that they will fall under secondary sanctions. At the same time, questions also arise to the state. As of today, the Government is monitoring trade in goods included in the sanctions lists by a number of countries.

Russia and I are members of the Eurasian Economic Union, the conditions of which are the free movement of goods. Our Western colleagues understand this very well. Our close historical trade and economic ties are also taken into account. Our individual plants almost complement each other, something is produced from them, something from us. 

All these aspects are discussed in detail with partners both in the EAEU and with other countries.

In general, I would like to note that Kazakhstan's trade and economic ties are quite diversified. We trade with 160 countries around the world, with Russia, the EU and China being the main trading partners.

- Then I would like to know how the state is trying to solve the problems of Kazakhstani suppliers today due to the disruption of logistics chains after the introduction of anti-Russian sanctions? Is work underway to find alternative routes bypassing Russia?

- Kazakhstan is the largest landlocked country, the so-called "land-locked-countries". Accordingly, the inclusion in the sanctions lists of the transport industry of Russia and Belarus requires us, as you correctly noted, to search for new routes for the delivery of goods to traditional markets.

Currently, the Government is actively working in this direction. The main task is to build up the Trans-Caspian route, strengthen the role of the North-South transport corridor, and ensure barrier-free movement of goods through China.

It also seems promising to increase the supply of goods through the Persian Gulf countries and further in the direction of South Asia.

In general, four routes are promising and alternative for today.

The first is the multimodal Middle corridor (TMTM), through which it became possible to carry out transit between China (as well as Central Asian countries) and European countries, and most importantly - export-import transportation between Kazakhstan and Europe. I would like to note that imports through TMTM increased by 91%. The largest growth occurred in chemicals and soda, ferrous metals, juices and beverages. Ferrous and non-ferrous metals were reoriented along the TMTM route, as well as in the direction of China, Uzbekistan and Afghanistan.

The second route is the KTI railway corridor (Kazakhstan- Turkmenistan – Iran), which can serve as an infrastructure for transportation to Iran and further to enter the markets of the Middle East, Southeast Asia and Africa.

The third is the multimodal corridor, the North-South international transport corridor. It connects with the majority of latitudinal transport corridors used for international cargo transportation in Euro-Asian traffic. It should be noted that the role of the international transport corridor "North-South" is significantly increasing in the context of the formation of "new logistics", providing the shortest distances of cargo transportation between the EAEU countries and South Asia, East Africa and the Middle East.

The fourth is the southern railway corridor (Almaty-Tashkent–Ashgabat–Iran– Turkey), as an alternative route for transit and access to Turkey and Asian markets.

However, a systematic approach is very important in this work – it is necessary to provide convenient logistics, ensure the removal of barriers on the way of goods, as well as negotiate with counter-partners on supplies.

At the same time, it is important to understand that foreign partners will gladly accept Kazakhstani goods if our manufacturers can ensure the rhythm of deliveries and quality stability.

- Another issue of concern to the public. It is known that by 2025 a supranational body for regulating the financial market of the EAEU should be formed in Almaty, what will it be and can the role of the local financial regulator decrease with its creation?

- No, the creation of a supranational body definitely does not imply a reduction in the role of the local regulator and does not mean that someone will encroach on our financial independence or set for us, for example, refinancing rates. Moreover, there is no question of introducing a single currency.

The mandate of the national financial market regulators of each EAEU member state and independence in matters of monetary policy, ensuring financial stability, admission of financial market participants, supervision of market entities will remain.

It is assumed that the main tasks of the supranational body will be the development of a common financial market and ensuring non-discriminatory access to the markets of other members of the union.

The body is planned to be formed in the form of a department that will monitor the implementation of the rules of the game in the EAEU.